In this section, a reference to a person to whom this section applies is a reference to the Commonwealth, a State, an authority of the Commonwealth or of a State or a person who is, or persons at least 1 of whom is, a resident.

Note:

References in this section to amounts paid to a person may include amounts from an AMIT that, under section
12A-205
in Schedule 1 to the
Taxation Administration Act 1953
, are treated as payments to the person (from the trustee of the AMIT or a custodian).

S 128B(1) amended by
No 79 of 2007
, s 3 and Sch 9 item 13, by substituting
"
sections 802-15 and 802-17
"
for
"
section 802-15
"
in the note, applicable in relation to income years starting on or after 1 July 2005.

S 128B(1) amended by No 147 of 2005, No 64 of 2005, No 90 of 2002, No 11 of 1988, No 58 of 1987, No 108 of 1981 and No 51 of 1973.

(i)
is paid to the non-resident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a country outside Australia at or through a permanent establishment of that person in that country; or

(ii)
is paid to the non-resident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

(a)
is, or has, after 2 July 1973, been, derived, or derived in part, by a person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

(b)
consists of interest that:

(i)
is or has been paid to the person by another person to whom this section applies and is not an outgoing wholly incurred by that other person in carrying on business in a country outside Australia at or through a permanent establishment of that other person in that country; or

(ii)
is or has been paid to the first-mentioned person by a person who is, or by persons each of whom is, not a resident and is, or is in part, an outgoing incurred by that last-mentioned person or those last-mentioned persons in carrying on business in Australia at or through a permanent establishment of that last-mentioned person or those last-mentioned persons in Australia;

this section also applies to that income or to the part of that income so derived, as the case may be.

Note:

An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section
768-980
of the
Income Tax Assessment Act 1997
.

(i)
is paid to the non-resident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a foreign country at or through a permanent establishment of that person in that country; or

(ii)
is paid to the non-resident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

(a)
is derived, or derived in part, by a person (the
recipient
) to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

(b)
consists of a royalty that:

(i)
is paid to the recipient by another person (the
payer
) to whom this section applies and is not an outgoing wholly incurred by the payer in carrying on business in a country outside Australia at or through a permanent establishment of the payer in that country; or

(ii)
is paid to the recipient by one or more persons (the
non-resident payers
), each of whom is not a resident, and is, or is in part, an outgoing incurred by the non-resident payers in carrying on business in Australia at or through a permanent establishment of the non-resident payers in Australia;

this section also applies to that income or to the part of that income mentioned in paragraph (a).

(i)
exempt from income tax because of section
50-5
(other than because of item 1.6 in the table in that section) or
50-10
, item 6.1 or 6.2 of the table in section
50-30
, section
50-40
or item 9.1, 9.2 or 9.3 of the table in section
50-45
of the
Income Tax Assessment Act 1997
; and

(ii)
exempt from income tax in the country in which the non-resident resides; or

(e)
income that is derived by a trustee, being a trustee in relation to a trust created by a person who, at the time the income is derived, is a resident and in respect of which the Commissioner is empowered, under section
102
, to assess the trustee to pay income tax; or

(ii)
in relation to a dividend that is paid by a former exempting entity (within the meaning of the
Income Tax Assessment Act 1997
) on a share acquired under an employee share scheme (within the meaning of that Act)
-
the part of the dividend that is franked with an exempting credit; or

(iii)
in relation to a dividend that is paid by a former exempting entity (within the meaning of the
Income Tax Assessment Act 1997
) to an eligible continuing substantial member (within the meaning of that Act)
-
the part of the dividend that is franked with an exempting credit;

other than a dividend in respect of which a determination is made under paragraph
204-30(3)(c)
of the
Income Tax Assessment Act 1997
or a dividend or a part of a dividend in respect of which a determination is made under paragraph
177EA(5)(b)
of this Act; or

(gb)
income that consists of a dividend derived from assets included in the insurance funds of a life assurance company that carries on business in Australia at or through a permanent establishment of the life assurance company in Australia; or

(ii)
interest derived by a non-resident in carrying on business in Australia at or through a permanent establishment of the non-resident in Australia (except interest derived by a limited partner in a VCLP, ESVCLP or AFOF as such a partner);

Archived:

S 128B(3)(c) and (g) repealed as inoperative by
No 101 of 2006
, s 3 and Sch 1 item 129, effective 14 September 2006. For
application and savings provisions
and for former wording see the
CCH Australian Income Tax Legislation archive
.

S 128B(3) amended by No 34 of 2019, s 3 and Sch 3 item 1, by inserting the note at the end of para (jb), effective 1 July 2019. No 34 of 2019, s 3 and Sch 3 item 3 contains the following application provision:

3 Application
(1)
Subject to subitems (2) and (3), the amendments made by this Schedule apply in relation to income that is derived on or after 1 July 2019.
(2)
The amendments made by this Schedule apply to income that is derived by a superannuation fund on or after 1 July 2026 if:

(a)
the income was derived by the superannuation fund in respect of an asset; and

(b)
subsection
128A(3)
of the
Income Tax Assessment Act 1936
does not apply in relation to that income; and

(c)
the superannuation fund acquired the asset on or before 27 March 2018.
(3)
The amendments made by this Schedule apply to income that is derived by a superannuation fund on or after 1 July 2026 if:

(a)
because of the operation of subsection
128A(3)
of the
Income Tax Assessment Act 1936
, a superannuation fund derived the income because it holds an interest in a trust estate; and

(b)
the superannuation fund started to hold that interest on or before 27 March 2018; and

(c)
the dividend, non-share dividend or interest that was included in the income of the trust estate as mentioned in that subsection was so included in respect of an asset; and

(d)
the trustee of the trust estate acquired the asset on or before 27 March 2018.

(ab)
income that is exempt from income tax because of item 9.4 of the table in section 50-45 of the
Income Tax Assessment Act 1997
(which exempts income derived by the Commonwealth Games Federation); or

S 128B(3) amended by No 15 of 2007, s 3 and Sch 1 item 100, by substituting
"
superannuation fund for foreign residents
"
for
"
foreign superannuation fund
"
in para (jb)(i), applicable to the 2007-2008 income year and later income years.

S 128B(3)(h)(iv) amended by
No 101 of 2006
, s 3 and Sch 4 item 3, by amending a reference to a repealed inoperative provision, effective 1 January 2008.

S 128B(3) amended by
No 101 of 2006
, s 3 and Sch 2 items 335 to 337, by amending references to repealed inoperative provisions and by inserting para (jb), effective 14 September 2006. For application and savings provisions see the
CCH Australian Income Tax Legislation archive
.

S 128B(3) amended by No 23 of 2005, No 105 of 2004, No 101 of 2004, No 73 of 2004, No 65 of 2003, No 16 of 2003, No 12 of 2003, No 163 of 2001, No 93 of 1999, No 70 of 1999, No 47 and No 17 of 1998, No 95 of 1997, No 121 of 1997, No 181, No 138 and No 56 of 1994, No 98 of 1992, No 105 of 1989, No 78 and No 11 of 1988, No 62 and No 58 of 1987, No 25 of 1983, No 108 of 1981, No 80 of 1975, No 51 of 1973 and No 54 of 1971.

Paragraph (3)(ga) does not apply to income consisting of a dividend, or a part of a dividend, that is derived by the trustee of a trust, or a partnership, to the extent (if any) to which any amount paid to, or applied for the benefit of, a taxpayer (being a beneficiary in the trust or a partner in the partnership) that:

(a)
was attributable to the dividend; and

(b)
was paid or applied:

(i)
in respect of an interest in the trust or partnership that was acquired, or was acquired for a period that was extended, at or after the commencing time; or

(ii)
under a financing arrangement (including an arrangement extending an earlier arrangement) entered into at or after the commencing time;

commencing timemeans 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997.

financing arrangementhas the meaning given by subsection
995-1(1)
of the
Income Tax Assessment Act 1997
.

Archived:

Former definition of
"
finance arrangement
"
repealed as inoperative by
No 101 of 2006
, s 3 and Sch 1 item 130, and new definition inserted by s 3 and Sch 2 item 339, effective 14 September 2006. For
application and savings provisions
and for former wording see the
CCH Australian Income Tax Legislation archive
.

A superannuation fund satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the total participation interest (within the meaning of the
Income Tax Assessment Act 1997
) the superannuation fund holds in the test entity:

(a)
is less than 10%; and

(b)
would be less than 10% if, in working out the direct participation interest (within the meaning of that Act) that any entity holds in a company:

(i)
an equity holder were treated as a shareholder; and

(ii)
the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company.

A superannuation fund has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

(a)
the superannuation fund:

(i)
is directly or indirectly able to determine; or

(ii)
in acting in concert with others, is directly or indirectly able to determine;

the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity
'
s operations;

(b)
at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the superannuation fund (whether those directions, instructions or wishes are expressed directly or indirectly, or through the superannuation fund acting in concert with others).

However, a superannuation fund does not have influence of a kind described in subsection (3CD) if, disregarding any breach of terms of a debt interest by any entity, the superannuation fund would not have influence of that kind.

This section does not apply to income that consists of a dividend that:

(a)
is paid to a person who is a non-resident carrying on business in Australia at or through a permanent establishment of the person in Australia; and

(b)
is attributable to the permanent establishment; and

(c)
is not paid to the person in the person
'
s capacity as trustee.

Note:

This subsection not only ensures that this section does not apply to that income to make withholding tax payable on it, but also (as a result) ensures that none of that income is non-assessable non-exempt income under section
128D
. Subsection
44(1)
makes that income assessable income.

128B(4)
A person who derives income to which this section applies that consists of a dividend is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

A person who derives income to which this section applies that consists of interest is, subject to subsections (6) and (7), liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

A person who derives income to which this section applies that consists of a royalty is liable to pay income tax upon that income at the rate declared by Parliament in respect of income to which this subsection applies.

(b)
the interest is, in part only, an outgoing incurred by that person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of that person to whom this section applies in that country;

(a)
income to which this section applies consists of interest and is paid to the person by whom it is derived by a person who, or by persons each of whom, is not a resident; and

(b)
the interest is, in part only, an outgoing incurred by the person or persons by whom it is paid in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia;

income tax is payable under subsection (5) upon so much only of the income as is attributable to so much of the interest as is an outgoing so incurred.

For the purposes of subparagraphs (2)(b)(i) and (2A)(b)(i) and paragraph (6)(b), where:

(a)
interest is paid, or has, after 2 July 1973, been paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

(b)
the interest, or a part of the interest:

(i)
is interest incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is interest incurred by the other person for the purpose of gaining or producing income to be so derived; or

(ii)
is interest incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

the interest or the part of the interest, as the case may be, is not an outgoing incurred by the other person in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country.

For the purposes of sub-paragraphs (2)(b)(ii) and (2A)(b)(ii) and paragraph (7)(b), where:

(a)
interest is paid, or has, after 2 July 1973, been paid, to a person by another person or other persons (in this subsection referred to as
the borrower
), being:

(i)
another person who is or was carrying on business in Australia and is not or was not a resident; or

(ii)
other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

(b)
the interest or a part of the interest:

(i)
is interest incurred by the borrower in gaining or producing income that is derived by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia or is interest incurred by the borrower for the purpose of gaining or producing income to be so derived; or

(ii)
is interest incurred by the borrower in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the borrower in so carrying on business at or through a permanent establishment of the borrower in Australia;

the interest or the part of the interest, as the case may be, is an outgoing incurred by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia.

(a)
a royalty is paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

(b)
the royalty, or a part of the royalty:

(i)
is a royalty incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is a royalty incurred by the other person for the purpose of gaining or producing income to be so derived; or

(ii)
is a royalty incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

the royalty or the part of the royalty, as the case may be, is not an outgoing incurred by the other person in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country.

(a)
a royalty is paid to a person by another person or other persons (the
licensee
), being:

(i)
another person who is or was carrying on business in Australia and is not or was not a resident; or

(ii)
other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

(b)
the royalty or a part of the royalty:

(i)
is a royalty incurred by the licensee in gaining or producing income that is derived by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia or is a royalty incurred by the licensee for the purpose of gaining or producing income to be so derived; or

(ii)
is a royalty incurred by the licensee in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the licensee in so carrying on business at or through a permanent establishment of the licensee in Australia;

the royalty or the part of the royalty, as the case may be, is an outgoing incurred by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia.

Note:

(d)
in addition to the effect of any credit arising under section
18-30
in Schedule
1
to the
Taxation Administration Act 1953
in respect of the interest, the total tax payable by the person, other than under this section, is reduced by the amount of any tax payable under this section on the interest; and

S 128B(9C) amended by
No 101 of 2006
, s 3 and Sch 2 items 340 to 341, by amending references to repealed inoperative provisions, effective 14 September 2006. For application and savings provisions see the
CCH Australian Income Tax Legislation archive
.

S 128B(9C) amended by Act No 179 of 1999 and inserted by No 95 of 1997.

Income tax payable by a person in accordance with this section upon income to which this section applies by virtue of subsection (2A) or (2C) is in addition to, and shall not be taken into account in arriving at the amount of, any other income tax payable by him or her in respect of that income.

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